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Germantown Mfg. Co. v. Rawlinson - 341 Pa. Super. 42, 491 A.2d 138 (1985)

Rule:

"Unconscionability" is a defensive contractual remedy which serves to relieve a party from an unfair contract or from an unfair portion of a contract. 13 Pa. Cons. Stat. §2302. Unconscionability has generally been recognized to include an absence of meaningful choice on the part of one of the parties together with contract terms which are unreasonably favorable to the other party. The unconscionability defense has been extended beyond the code to the non-sale of goods cases. The underlying rationale for this remedy is closely related to the rationale underlying fraud. The purposes which both remedies were designed to serve are inextricably linked.

Facts:

Plaintiff Robert J. Rawlinson, Jr., was employed by defendant Germantown Manufacturing Company ("Germantown") as its assistant controller. Over a period of 21 months, Mr. Rawlinson embezzled $ 327,011.22 from Germantown. When Germantown discovered the misappropriation, Mr. Rawlinson admitted his wrongdoing and was fired. However, Germantown told Mr. Rawlinson and his wife, plaintiff Joan Rawlinson, that if they cooperated and signed two confession of judgment notes, Germantown would not seek criminal prosecution. Mrs. Rawlinson signed the notes. When Germantown later initiated an action to recover the misappropriated funds,  Mrs. Rawlinson filed a petition in Pennsylvania state court to open a confessed judgment, which the trial court granted. The trial court held that Germantown fraudulently induced Mrs. Rawlinson under duress to sign the judgment notes to recover the funds and that Germantown failed to account for the manner in which it arrived at the figure owed by Mr. Rawlinson. Germantown appealed.

Issue:

Did the trial court err by granting the petition to open a confessed judgment?

Answer:

No.

Conclusion:

The appellate court affirmed the trial court's judgment. The court noted that Mrs. Rawlinson could avoid the notes by showing that they were executed through fraudulent or material misrepresentation. The court held that Germantown's threat of criminal prosecution was improper and voided the contracts. In addition, the  notes were unconscionable because Mrs. Rawlinson lacked a meaningful choice, and the terms of the contracts were unreasonably favorable to Germantown.

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